Walmart’s Charts Look Shaky

by Serge Berger | February 5, 2013 11:49 am

Considering we are just one month and a few days into the new year, the broader stock market is up big already for 2013. One stock which hasn’t all that much participated is Walmart (NYSE:WMT[1]) as it currently is up just around 2% for the year.

Walmart traded in a wide but narrowing trading range over 10 years, until it busted a move like Jagger in May 2012. Through this lens, the stock’s consolidation phase since October 2012 is just that — mean-reversion to work off the overbought levels.

The major rally that ultimately led to the multiyear breakout originated in August 2011 and has been orderly from a technical point of view. A sideways consolidation from late 2011 through April 2012 then coiled up the stock to ultimately move into a topping process in the autumn and the ensuing correction.

Closer up still, the recent price consolidation has pushed WMT down into a confluence zone of moving averages where both the 200- and 50-day simple moving averages have come together. I often am skeptical of blindly using moving averages as defined risk or support areas, but Walmart does have a history or respecting its 200-day SMA (red line), so a clearer drop below it would qualify as a bearish signal.

The relatively modest lift in the stock thus far in 2013 now looks to have formed a bear flag formation, which ultimately could resolve lower to the $65 area. In other words, a break below and out of the bear flag also would coincide with a more definite break below the 200-day moving average.

The Market Vectors Retail ETF (NYSE:RTH[2]) — which counts Walmart as its largest holding at around 11% — also has left some near-term topping signals on its daily chart. The two shooting star candles marked by arrows on the charts act as powerful resistance and thus clearly defined risk for those looking to lean against Walmart or the ETF.

Important to note is that Walmart will be reporting earnings on Feb. 21, and while it looks like the stock could slip lower until then, holding such a position through an earnings announcement is not what I call high-probability trading. If you are looking for a thrill, your local amusement park will offer you better odds at likely much less cost and nerves (barring any long lines).

Serge Berger is the head trader and investment strategist for The Steady Trader[3]. Sign up for his free weekly newsletter here[4].